Certificate of Tax Clearance vs. Certificate of No Tax Due

Tax Clearance

In Tax Clearance Basics I discuss the importance of obtaining a tax clearance certificate when buying a business. I also provide instructions on how to obtain such a certificate in Missouri.

In short, when you buy a business, state taxing authorities can assess the seller’s unpaid state taxes against you. This is true even if your purchase agreement states that the seller is responsible for paying the taxes.

The good news is that many states have a process through which buyers can protect themselves. This is called tax clearance.

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Tax Clearance Basics

seller's taxes are a punch in the face

When you buy a business, you should make sure that the seller is caught up on paying state taxes. If you don’t, you might find yourself stuck with the bill after closing. Worse yet, you might find that your shiny new business is encumbered by a tax lien.

In every state I’m aware of, the law allows state taxing authorities to assess the buyer of a business for unpaid taxes of the seller — even if the transaction is structured as an asset sale. Tax obligations follow the business assets, even if the purchase agreement says that the buyer isn’t taking on those liabilities.

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